The Power of Protection: How IP Assets Can Fuel Startup Growth

Expenditure on IP should be viewed as an investment in the long-term future of the business, as a means by which to enhance its commercial value. Robert Lind, Partner at Marks & Clerk, a global intellectual property firm, discusses how having an IP strategy in place can be make or break when it comes to securing investment from third parties.

Headlines recently reported that funding for startups has reached eight-year lows, as such the competition for investment has once again turned up a notch. As such, founders are tightening the purse strings further still, whilst seeking new ways to differentiate themselves.

Against this backdrop, it can be tempting for founders to push intellectual property down the list of priorities. Yet, founders must be wary of viewing IP assets as an optional extra: studies have proven that startups with a clear IP strategy have a far greater likelihood of investment and could prove make-or-break for many.

In fact, the European Patent Office and European Union Intellectual Property Office recently found that European startups that file for patents and/or trademarks during their initial seed or early growth phases are up to 10.2 times more likely to attract investment funding.

So, with intellectual property a vital step in the road to investment, what’s the first step for startups?

To begin, startups must identify their critical IP assets early and not disclose these to anyone, so as to avoid the risk of assets being un-patentable. Startups need to own their IP, or at least procure a licensing agreement, as soon as possible – but it’s worth taking time to find the right expert to support you through this.

References and recommendations from more mature start-ups will be vital, as a good adviser will prove a long-term asset themselves. You should also consider teams that span the technologies, jurisdictions, and asset categories that apply to you – or will apply, in the future, as explained in The IP Driven Startup.

Once IP assets are secured, a startup is in a far stronger position for investment – and not only because of the greater tangible value of their business. Moreover, financial investors view IP assets as clues for the wider dynamics at play within a business as they signpost crucial information about the culture and management of the business.

As the old adage goes, people are your company’s most powerful asset, and securing IP assets can be an invaluable indicator of the quality of the management team. A startup that proactively manages its assets is an indication of its organisation and confidence; those who do not, risk appearing disorganised and uncommitted. Securing IP assets also shows that a venture has successfully navigated their IPO’s legal requirements and evaluations, and with the legal patent system separating the wheat from the chaff, a startup with a successful IP strategy in place, is yet a further demonstration of its good management and credibility.

Not only do IP assets reflect well on the management of a startup, but also serve as an indication of its innovative culture. Many capital markets perceive a correlation between patents and innovation, identifying startups’ prioritisation of innovation as an indicator of future business growth, and therefore, profits. This innovative culture also signals a fundamental awareness of market competition, which reduces risk for an investor who instead can be confident that decisions are informed and strategically pushing towards greater profits. Competitor awareness also brings a cycle of improvement, as ventures improve their products to capitalise on competitor weaknesses and strengths, and vice versa, furthering innovation.

Ultimately, expenditure on IP should be viewed as an investment in the long-term future of your business, as a means by which to enhance its commercial value. Securing these assets early on gives founders a crucial shield from potential legal disputes but also proves an essential leverage point in discussion with investors. With success stories ranging the breadth of the market, from Dropbox to Spanx, IP assets may well prove the crucial difference for many.